Are your tax return preparer credentials in order?

While full-scale regulation of tax return preparers is on the IRS’ wish list, there are nonetheless some requirements that all preparers will need to prepare their clients’ 2021 returns.

Preparer Tax Identification Numbers

Virtually all individuals who prepare tax returns for compensation must have a Preparer Tax Identification Number (PTIN). This requirement generally applies to all attorneys, accountants, and enrolled agents who prepare returns, as well as to other tax return preparers.

The PTIN requirement applies to any preparer who is involved in preparing a return, even if they are not the primary preparer who signs the return. The PTIN also applies to “supervised preparers” who do not, and are not required to, sign returns, but who are employed by an attorney or CPA firm, and who prepare returns under supervision.

The PTIN requirement applies on an individual basis. Preparers who share an office cannot share a PTIN. Each individual who prepares or assists in preparation of returns must have his or her own PTIN.

An individual must be at least 18 to obtain a PTIN and must generally provide a Social Security number (SSN). The SSN requirement does not apply to U.S. citizens who have a conscientious objection to obtaining an SSN or to certain foreign preparers. An individual with an Individual Taxpayer Identification Number (ITIN) cannot obtain a PTIN.

Apply now. All PTINs must be renewed on a calendar-year basis using the IRS’ online application or by submitting a paper application on Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application and Renewal. The annual fee for a PTIN is $35.95. Holders of valid PTINs must renew before Jan. 1 each year. Renewed PTINs are valid from Jan. 1 through Dec. 31 of the following calendar year. PTINs obtained or renewed for a calendar year expire on Dec. 31 of that year. Preparers should note that online renewal takes just minutes, while Form W-12 submissions can take 4-6 weeks to process.

Electronic Filing Identification Numbers

Under current rules, the vast majority of tax return preparers must file client returns electronically. The e-file mandate generally applies to any preparer who expects to file more than 10 individual tax returns during a calendar year. Tax preparation businesses are required to compute the total number of returns on firm-wide basis. If the number of returns tops 10, then all members of the firm must e-file.

There are some exceptions to the e-filing requirement—for example, returns that cannot be filed electronically, returns of clients who insist on paper returns, or situations where e-filing would cause hardship for the preparer. However, preparers will generally need to e-file most, if not all, of their clients’ returns.

To file returns electronically, a preparer will need an Electronic Filing Identification Number (EFIN). Unlike PTINs, EFINs are issued on a firm-wide basis. A firm applies for an EFIN using either its Employer Identification Number (EIN) or the SSN of the sole proprietor. Applicants must pass a suitability and tax compliance check. There is currently no fee for an EFIN.

Apply now. Before applying for an EFIN, a preparer must have an IRS e-services account. E-services is a suite of web-based tools that allow tax professionals and payers to complete certain transactions online with the IRS. The tools include E-File Provider Service, a Transcript Delivery System, Taxpayer Identification Number (TIN) Matching, and Affordable Care Act (ACA) Services for filing health information returns. In the case of a firm, each principal and responsible official must sign up for e-services. The e-services application will require identifying information about each firm principal, including SSNs and adjusted gross income information for the prior year. When timing an e-file application, preparers should bear in mind that the e-services sign-up process can take several days.

Once the necessary e-services accounts are set up, the preparer or firm can submit an online e-file application. There are a number of e-file provider options; preparers who want to e-file for clients should select Electronic Return Originator (ERO). The e-file application will require additional information about the preparer or firm principals, including fingerprints and a suitability check. Consequently, the IRS cautions that approval of an e-file application can take as long as 45 days.

Unlike PTINs, EFINs do not have to be renewed each year. However, application information must be updated within 30 days of any changes.